LBJ, Dynamic pricing models, China's woes, and @lnternetxpIore
|Jul 21||Public post|
I’m going to be in NYC next weekend from the 26th-29th. I would love to meet you in person. Please reply to this email if you’re up for a coffee or meal – we can do it at your favorite spot in the city!
With that out of the way, I want to talk about:
LBJ, centralization, and power law
Surge pricing for marketplaces
One man’s loss is another man’s opportunity
And much more!
Book of the week
This week, I re-read parts of my favorite book, The Master of the Senate by Robert Caro. The book focuses on LBJ’s rise as the commanding force in the US Senate. My favorite part of the book is how Lyndon Johnson uses different levers of the Senate system to amass influence as the new Majority Leader of the Senate. I want to talk about two of these levers:
Centralization to remove inefficiencies
Before LBJ, Senators were fiercely independent. There was a loosely defined party line, but voting on key issues was not consistent across them. Senators often had views that were not in line with the party they were affiliated with. That changed with LBJ.
As Majority Leader, LBJ had his staff members sit in on meetings of the various committees, who brought back valuable intel on the key disagreements before Senators. Since LBJ had information across the different committees, he was much better placed to wheel and deal with Senators. He gave them things they wanted in one place to get their support in another. This allowed him to make the Senate – an institution that is famously inept – work.
Power law in organizations
In any organization, the real influence resides with a few key people. In the Senate, these are the chairmen of the Senate’s Standing Committees. Any bill that is presented on the floor of the Senate has to be approved by one of these committees first, and the Senate rarely votes down committee bills. So, if you have the support of the Chairmen, you can control the Senate. That’s exactly what LBJ did.
He started with taking the day-to-day burdens away from the Chairmen of worrying about the timing of introducing a bill, when to start a vote, etc. Most of these Chairmen were old, so they didn’t want to concern themselves with mundane logistics. They grew accustomed to LBJ handling that for them.
There was gradually growing an attitude, ‘Let Lyndon do it.’ You don’t realize you’re losing power, you don’t realize that things are changing. You think the Leader is only helping you. But the first thing you know, he’s integrating everything. He knows everything about every bill, he can change one thing for another with different scenarios.
Handling the mundane logistics allowed him to control the flow of information. That’s how LBJ became the Master of the Senate.
Long reads of the week
I’ve been reading up on dynamic pricing algorithms – the kind that two-sided marketplaces like Uber and Airbnb use to match supply and demand. A cornerstone of these algorithms is surge pricing – when the demand for a service is high, the price goes up. This paper by a joint team from Stanford, Uber, and Microsoft demonstrates how surge pricing avoids the Wild Goose Chase problem while keeping prices low at all other times.
A Wild Goose Chase problem is described as:
When drivers are scarce relative to demand, drivers are quickly occupied and thus idle drivers are spread thinly throughout a geographic region, forcing matches between drivers and passengers that are on average faraway from each other. Cars are thus sent on a wild goose chase (WGC) to pick up distant customers, wasting drivers’ time and reducing earnings. This decreases the number of available cars both directly by occupying cars and indirectly as cars exit in the face of reduced earnings, exacerbating the problem. This harmful feedback cycle can lead the system to collapse with a steep decline in welfare.
The key assertion of the paper is that if surge pricing (which not everyone looks too fondly upon) was eliminated, you’d have to always keep prices a bit higher than the current baseline. Therefore:
Raising prices, either by keeping them consistently high or “surge” pricing only at high demand times, brings demand back under control and avoids these catastrophic failures. Banning surge pricing would thus likely result in always-high prices.
A really interesting read about something that so many of us experience every day.
Personal update of the week
The big update is the upcoming trip to New York. If you’re up for a chat between the 26th-29th July, let me know by replying to this email. I’d love to grab a coffee or a meal at your favorite spot in the city!
Gesture of the week
Business news of the week
The recent trade war between the US and China has prompted companies to move their supply chains elsewhere.
The biggest beneficiaries of that decline have been other countries in Asia where production costs are low, such as Vietnam, India, Taiwan and Malaysia. Many of those countries have recorded sharp increases in exports.
This reminded me of the #DeleteUber movement last year which led to Lyft getting a lifeline when it was on the verge of dying. This could be exactly the kind of break that neighboring countries with the right conditions have been looking for. Temporary changes can create long-lasting impact, specially as supply chains requires large upfront capital investments. It requires more commitment than downloading a new app!
Related: Cheating the tariff system. Always fascinated by ways
Random corner of the week
Hilarious Twitter account to follow: @lnternetxpIore.
Meal of the week
I went to Cafe Ba-Ba-Reeba! in Lincoln Park last week. I had the Burrata, Garlic Shrimp, patatas bravas, Goat Cheese Baked in Tomato Sauce, and the Piri-Piri Fried Chicken. It was way too much food for an incredibly hot afternoon. Go with four dishes for two people.
That wraps up this week’s Sunday Snapshots. If you want to discuss any of the ideas mentioned above or have any books/papers/links you think would be interesting to share on a future edition of Sunday Snapshots, please reach out to me by replying to this email or sending me a direct message on Twitter at @sidharthajha.
Until next Sunday,